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Cyber spying to power Ultra Electronics

RESULTS: Investment in cyber security will help Ultra Electronics ride out the downturn in defence spending, and its shares remain a buy
February 28, 2012

Making money in a shrinking defence market is getting harder, but Ultra Electronics still managed double-digit profit growth, driven by demand for cyber security and sales of sensors and controls for nuclear reactors.

IC TIP: Buy at 1697p

Although the military accounts for around 60 per cent of Ultra's sales, organic revenue edged up 2 per cent in 2011, while underlying pre-tax profit grew 12 per cent to £114.9m. Hold-ups in the US meant a sharp drop in orders at the tactical and sonar division, while cuts to military planes in Europe hurt the aircraft and vehicle order book, but acquisitions nevertheless helped the order book grow 16 per cent to £950.

Still, cutting back on risky new programmes should mean more upgrade work for Ultra, while a series of acquisitions mean cyber security will make up 20 per cent of group sales by the year-end. Sales to aircraft manufacturers and nuclear projects are also expected to grow this year, and chief executive Rakesh Sharma wants acquisitions in Australia to be used as a stepping stone into Asia, too.

Broker Collins Stewart expects adjusted pre-tax profit of £129m in 2012, giving adjusted EPS of 134.8p (from 107.9p in 2011).

ULTRA ELECTRONICS HOLDINGS (ULE)

ORD PRICE:1,697pMARKET VALUE:£1.17bn
TOUCH:1,697-1,700p12-MONTH HIGH:1,788pLOW: 1,265p
DIVIDEND YIELD:2.3%PE RATIO:18
NET ASSET VALUE 413p*NET DEBT:16%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200741356.660.921.2
2008515-2.902.6026.0
200965110811531.2
201071091.396.834.6
201173291.296.238.5
% change+3--1+11

Ex-div: 11 Apr

Payment: 4 May

*Includes intangible assets of £418.5m, or 607p a share